Prepared by Nabil Abu Ghattas 4/8/2009

Alternative Dispute Resolution in Construction : Preparation for and Management of Disputes with special reference to FIDIC Prepared by Nabil Abu Ghattas 4/8/2009

Presentation Structure • 1. Introduction • 2. Causes of disputes in construction projects • 3. Dispute clauses in contracts • 4. Construction Documentation in ADR • 5. Managing Disputes • 6. Dispute Resolution under FIDIC 1999 • 7. Conclusion

1. Introduction • Construction projects have several unique qualities that distinguish them: The amount of money involved is often very high, long project durations, highly technical nature, circumstances of execution vary with the different locations and times; seldom are two projects the same. • On the international scale, several parties are involved with project execution; these parties having different origins and experiences. This makes it possible for disputes to arise around matters such as explanation of contracts, execution of the works or settlement of rights. This calls for the need for good and fast dispute settlement techniques. • Today, construction contracts are the subject of more disputes than any other industry; this is due mostly to high competition and demanding employers. (A dispute is defined as an issue that has been formally notified under the contract)

1. Introduction • How a dispute affects a contractor’s performance will depend on the nature of the matter in dispute, the attitude and position of the parties, and how the dispute is handled by the parties. In a simple case the effect could be nothing. Whilst in a drastic case, it could lead to the termination of the contract. • Arbitration remains the preferred alternative method to litigation for resolving disputes within the construction industry; however, other dispute resolution methods such as mediation, dispute-resolution boards are gaining popularity. • Going to arbitration means losing a client, try mediation first. However, if you must then you better be ready!

2. Causes of disputes in construction projects • Tender phase • Tender conformity; • Alternative designs/approaches; • Ambiguity in tender documentation; • Changes in work scope; • Misunderstandings in the post-tender negotiations; • The law and court to which disputes will be referred to; • Tender selection criteria; and • A challenge in regard to the selected tenderer.

2. Causes of disputes in construction projects • Project phase • Disagreement over measurements of quantities; • Disagreement over progress of the works; • Variation costs; • Untimely variations; • Late payments; • Changes to workscope; • Costs related to acceleration of the works; • Out-of-sequence works; • Project delays; • Project disruption.

2. Causes of disputes in construction projects • Post-project phase • Release of security or retention moneys; • Defects in the works; and • Settlement of outstanding claims.

3. Dispute Clauses in Contracts • At pre-tender stage, dispute resolution articles in the contract should be carefully studied to try and arrive at a mutually satisfactory agreement. • Standard form contracts should not be blindly adopted without careful consideration of the applicability of their provisions to the subject project. • “stepped” dispute resolution provisions are recommended: should the dispute not be settled start with a co-operative process(such as negotiation) escalating through various third parties through to the least co-operative processes such as arbitration or litigation.

4. Construction Documentation in Arbitration • The party keeping the most comprehensive and detailed records will have the decided advantage in any dispute-resolution proceeding. Document as though you were always going to court-never go. • Project Documentation and Daily Information Management are essential.

4. Construction Documentation in Arbitration • It is recommended to have a Project-Management Information Control System with the following types of data control: • Raw data (basic information that furnishes factual support for technical information; ex. Building codes, test data, and topographical surveys.) • Fundamental documents (written material establishing essential criteria for the project; ex. Contract documents and agreements, project manual, and master schedule)

4. Construction Documentation in Arbitration • Transaction documents (documents that have as their fundamental purpose the documentation of a specific project activity; ex. Request for proposal, request for information, change orders, field reports, and meeting minutes) • Transaction Files (the method by which transactions are recorded through their progression with the project; ex. RFI log, shop-drawing/submittal log, and bid tabulation forms). • Technical products (documented results of a technical or analytical effort on the project; for example, estimates, cost records, quantity take-offs, as-built schedules, and value engineering schedules.)

4. Construction Documentation in Arbitration • The following are recommendations to contractors on ways of recording, organizing, storing, and securing project documentation and day-to-day job information. • All field supervisors should prepare detailed daily reports outlining workforce levels, trade reports, job progress, work descriptions, inspections, equipment used, material deliveries, weather, unusual conditions, and other factors. • The jobsite log should be completed meticulously; a copy should be faxed to the home office every day.

4. Construction Documentation in Arbitration • Progress photos should be taken at least weakly and always of critical items, then should be dated, signed and filed. • The project manager should keep and maintain a personal daily diary. • Notice requirements in a construction agreement should be scrupulously followed. Contractors should notify owners immediately-in writing-of any event or direction received that they consider outside the scope of the contract. Sub Clause 20.1 of the Unified construction contract states that “If the contractor fails to give notice of a claim within such period of 28 days (after the contractor became aware, or should have become aware, of the event or circumstance), the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim.” • Telephone conversations should be confirmed immediately with letters of understanding.

4. Construction Documentation in Arbitration • All documents, samples, pictures, and others should be date-stamped as received • Chronological files should be kept on all job activities, e.g. delivery tickets, field orders, change orders, and payment requisitions. • The same information should be kept for each prime contractor and subcontractor, and for each design professional (architect, engineer, consultant, and others) • All correspondence should be answered promptly; it helps avoid problems later.

4. Construction Documentation in Arbitration • Common document related problems encountered by arbitrators (to avoid): • Too voluminous, irrelevant, or redundant • Not summarized • Disorganized/poorly indexed • Inferior presentation • Inadequate/incomplete

5. Managing Disputes • At tender phase • Properly document the agreement between the parties • Choose appropriate contract conditions • Choose an appropriate dispute resolution procedure

5. Managing Disputes • At project phase • Be pro-active • Develop a dispute management system • Maintain adequate records • Gather all relevant facts • Talk but talk carefully(with the other party) • Seek assistance as necessary • Be prepared to make the hard decisions • Choose an appropriate means of resolving the dispute

6. Dispute Resolution under - FIDIC 1999 • FIDIC is the International Federation of Consulting Engineers, with headquarters in Switzerland. • Since 1957, FIDIC has prepared and published several forms of contract and continuously upgraded them. • We will be referring to the • “Conditions of Contract for Construction For Building And Engineering Works Designed By The Employer “ First Edition 1999

6. Dispute Resolution under - FIDIC 1999 • Jordan has adopted the FIDIC 1999 for all projects issued by the Ministry of Works providing an Arabic version called the unified construction contract in 1/6/2004. • However, in case of a dispute regarding explanation of any clause, the Original English version of FIDIC 1999 supersedes. • This version of FIDIC incorporates the concept of the DAB – Dispute Adjudication Board. This was an expansion on the American introduction of the DRB – Dispute Review Board. The DRB only gives recommendation, whereas the DAB gives decision binding and applicable immediately. • The power given to the DAB was previously (4th edition) covered by the Engineer. This was actually one of the reasons many international bodies lobbied for the introduction of the DAB – the Engineer, in fact, is not impartial.

6. Dispute Resolution under - FIDIC 1999 • How DAB is formed: • Clause 20.2 – Appointment of the Dispute Adjudication Board: “The Parties shall jointly appoint a DAB by the date stated in the Appendix to Tender”. • “The DAB shall comprise, as stated in the Appendix to Tender, either one or three suitably quailified persons (“the members”). If the number is not so stated and the Parties do not agree otherwise, the DAB shall comprise three persons. • “If the DAB is to comprise three persons, each party shall nominate one member for the approval of the other Party. The Parties shall consult both these members and shall agree upon the third member, who shall be appointed to act as chairman.”

6. Dispute Resolution under - FIDIC 1999 • How DAB is formed: • Clause 20.3 Failure to Agree Dispute Adjudication Board • “then the appointing entity or official named in the Appendix to Tender shall, upon the request of either or both of the Parties and after due consultation with both Parties, appoint this member of the DAB……”

6. Dispute Resolution under - FIDIC 1999 • Obtaining Dispute Adjudication Board’s Decision – Clause 20.4 • Once any conflict arises between the two Paries regarding the contract or the execution of the works, it may be referred to the DAB through a written notice, copied to the other Party and the Engineer. The notice should mention that referral of the dispute is according to sub clause 20.4 • Both parties shall provide information and all necessary assistance to the DAB members to be able to assess and decide on the dispute.

6. Dispute Resolution under - FIDIC 1999 • Obtaining Dispute Adjudication Board’s Decision – Clause 20.4 • DAB shall give its decision within 84 days of receiving the notice. • In case either Party is dissatisfied with the DAB’s decision, then either Party may, within 28 days after receiving the decision, give notice of its dissatisfaction. Otherwise the decision shall become final and binding upon both Parties.

6. Dispute Resolution under - FIDIC 1999 • Amicable Settlement – Sub Clause 20.5 • Where notice of dissatisfaction has been given under Sub-Clause 20.4, both Parties shall attempt to settle the dispute amicably before commencement of arbitration. However, unless both Parties agree otherwise, arbitration my be commenced on or after the fifty-sixth day after the day on which notice of dissatisfaction was given. • The unified construction contract calls for arbitration according to the Jordanian arbitration law, unless otherwise agreed between the Parties (Original FIDIC calls for ICC, unless…)

6. Dispute Resolution under - FIDIC 1999 • Advantages of using the DAB • Resolves disputes in 84 days from the notice. • Costs involved are less than in case of arbitration or law courts. • The DBM are professional with experience in situations which degenerate in disputes. • The DB is appointed by both parties or by an independent body and gives confidence to the parties. • The disputes are assessed during the execution of the Contract when relevant personnel is available.

6. Dispute Resolution under - FIDIC 1999 • Advantages of using the DAB – cont’d • The DB is active during the construction period and knows when and where the problem occurred. • DB prevents problems and claims to develop into disputes. • Improves the contract management, professional standards and behaviour of the Engineer, Contractor and Employer. • At both parties’ request, the DB can give his opinion and help the parties to agree the issues sent to the DB for opinion.

7. Conclusion • Try your best to avoid disputes! • Dispute management begins at the time of contract formation. • If disputes arise while the work is still in progress, identify all issues and disputes early and manage them properly and pro-actively, to avoid things getting out of control. Do not ignore disputes!

7. Conclusion • To manage disputes properly one needs to have an understanding of the dispute resolution procedures available, the commercial influences involved, how the contracting game is played, a knowledge of relevant issues, an understanding of human behavior, patience and a measure of commonsense. • By properly managing a dispute one can often earn the respect of the other party and maintain, or even enhance the business relationship. • If you go to ADR, arbitration or litigation, weigh your gains against your losses. (an $80,000 case ended up costing the parties more than $1.5 million before it ended)

Thank You!

References • The Arbitrator & Mediator May 2002

Prepared by Nabil Abu Ghattas 4/8/2009